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Corn pops on domestic supply worries

04/10/2013 @ 3:06pm

Corn futures rose 0.7% Wednesday after the U.S. Department of Agriculture forecast tighter-than-expected domestic supplies of the grain.

In a closely watched monthly crop report, the USDA raised its projection for supplies prior to this fall's harvest by 20% to 757 million bushels. The forecast surprised some traders because analysts had projected a jump of 30%, on average, in a Dow Jones Newswires survey.

The government elevated its forecast for supplies on Aug. 31, the end of the current crop year, because it expects lower demand for corn from livestock companies and foreign importers. The USDA, however, raised its projection for how much corn will be consumed by the ethanol industry.



Corn futures for May delivery settled up 4.75 cents at $6.49 a bushel at the Chicago Board of Trade.

Corn prices fell earlier in the trading session because the USDA's forecast for global corn supplies was higher than analysts had expected. The USDA projected global corn supplies will total 125.3 million metric tons this year, well above analysts' expectations. The agency raised its estimate primarily because of decreased demand for corn in animal feed in the U.S., as well as in China and Mexico.

"There's something for both the bulls and the bears out there today," said Chad Henderson, president of Prime-Ag Consultants Inc., a commodity brokerage in Brookfield, Wis. "At the end of the day today, the bulls won by a nickel."

Analysts had widely expected the USDA to increase its projection for domestic supplies after it said in a March 28 report existing supplies of corn in the U.S. were far higher than analysts had anticipated. In that report, the USDA estimated corn supplies on March 1 totaled 5.4 billion bushels, 7% above the average analyst prediction in an earlier Dow Jones Newswires poll. The finding drove a dramatic 13% decline in corn futures over two days, the biggest two-day price drop in corn since at least 1959.

Corn further declined before rebounding this week, as traders became concerned the price drop had left corn undervalued. Even though supplies are greater than believed a few weeks ago, supplies are still at historically tight levels after the country's worst drought in decades ravaged crops in the Midwest last year. The recent price decline could spur increases in demand.

Wheat and soybean futures fell Wednesday, as the USDA forecast significantly greater-than-expected world supplies of the two commodities.

The USDA said global wheat supplies this year will total 182.3 million tons, above analysts' forecasts. The USDA said it raised its forecast for world wheat supplies largely because it revised its estimates of wheat usage in several countries in the previous marketing year. The USDA also cut its forecast for usage of wheat in animal feed in China by 13% to 20 million tons.

The USDA's production estimate was nearly unchanged for the most recent world wheat crop, which was harvested last year in the northern hemisphere.

The government said domestic wheat supplies as of May 31, the end of the wheat marketing year, will total 731 million bushels, in line with analysts' expectations. The USDA cut its forecast because of weaker expected demand for wheat in animal feed.

For soybeans, the USDA projected world soybean stockpiles at the end of the current crop year will be 62.63 million tons, above analysts' forecasts. The USDA raised its estimate largely due to higher production in countries including Paraguay and Uruguay, which have had favorable weather.

The USDA forecast lower-than-expected domestic soybean supplies as of Aug. 31. Its projection of 125 million bushels was below the average prediction of 137 million bushels in the Dow Jones poll. The agency raised its estimates of U.S. exports and domestic processing of soybeans.

Although the USDA reaffirmed current domestic soybean supplies are extremely tight, traders will remain focused on expectations for supplies to swell, said Peter Meyer, a grains analyst with PIRA Energy Group, an energy consultancy.

The soybean market has been pressured in part by large crops being harvested by farmers in South America.

"It's going to be tough" for market bulls, Mr. Meyer said. "Where's the next bit of bullish news out of the soybean market going to come from?"

The USDA raised its forecast for Brazil corn production to 74 million metric tons, up 1.5 million from its estimate last month and higher than analysts had expected. The USDA cited favorable weather for Brazil's crop.

The government didn't change its forecast for soybean production in Brazil, which is expected to surpass the U.S. as the leading global producer this year. The USDA projected Brazil's crop at 83.5 million tons, which would be a record for the country.


--Ian Berry and Andrew Johnson Jr. contributed to this article.
Write to Owen Fletcher at owen.fletcher@dowjones.com and Bill Tomson at bill.tomson@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
April 10, 2013 15:41 ET (19:41 GMT)
DJ UPDATE: U.S. Corn Settles Up on Domestic Supply Concerns->copyright


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